IRS, Land Contracts & Crack


#1

A prior post had helpfully pointed out that the IRS is not accepting contract for deed/land contract as a “sale” for purposes of $8,000 homebuyer tax credit. Specifically, see http://www.irs.gov/newsroom/article/0,,id=206291,00.html, question number 9, which reads as follows:

"Q. Does a taxpayer qualify for the first-time homebuyer credit upon the signing of a contract for deed, since normally the deeds are signed and executed but held in escrow until the provisions of the contract have been met?

A. Generally, no. A taxpayer is not eligible for the first-time homebuyer credit unless there is a completed sale. Under the facts presented, the contract for deed may not be a completed sale because all of the provisions of the contract have not been met. However, the determination of whether there is a completed sale would depend on the facts and circumstance of the particular case and perhaps state law. (New 06/12/09)"

My response: The IRS is on crack, this is why we have tax lawyers. Sometimes the IRS takes a position on the law that is contrary to the law itself. This is one of those cases.

To determine whether or not a sale (of a personal residence, for example) has occurred for tax purposes, the courts have stated that they will look to see who has the “benefits & burdens” of ownership, and have explicitly stated that title to the property is only one factor in the equation. On several occasions, the courts have determined ownership to reside in someone other than the title holder.

One such case, and a very widely quoted one, is Grodt & McKay Realty, Inc. vs. Commissioner, 77 TC 1221 (1981). In Grodt, the Tax Court set forth several tests to see who owns a piece of property for tax purposes. Lets apply the tests to a land contract:

(1) Whether legal title passes - OK, they’ve got us on that one;

(2) how the parties treat the transaction - generally as a sale, one for the good guys.

(3) whether an equity was acquired in the property - always the case under state law, we are now 2-1.

(4) whether the contract creates a present obligation on the seller to execute and deliver a deed and a present obligation on the purchaser to make payments, no brainer, 3-1

(5) whether the right of possession is vested in the purchaser, make that 4-1

(6) which party pays the property taxes, normally the resident & not the investor, draft correctly and we are at 5-1

(7) which party bears the risk of loss or damage to the property, normally not the investor, usually appears with insurance clauses requiring buyer to pay for insurance. 6-1 if properly drafted

(8) which party receives the profits from the operation and sale of the property, again, the buyer & not the investor, 7-1.

This is a no brainer, whoever answered the IRS question was thinking of “open transaction” doctrine, which applies to lease options & not land contract/contract for deed. It’s not the first time that the IRS has found itself on the wrong side of the law, it won’t be the last. Often, the IRS at least has a decent argument on a “grey” issue. Here, I think they do not even have that. This is a no brainer with a well-drafted land contract/contract for deed. Maybe the person who penned the answer felt it, notice how much they hedged their answer.

There’s plenty of other law on this issue that I did not take the time to cite. That law is consistent with Grodt and does not help the IRS. They are dead wrong on this one and are simply using their power to discourage a practice they do not like. Talk about a Praetorian Bureaucracy.


#2

Our government has been ignoring old laws and the constitution more and more these days. But do not worry John, it is for your own good. You have been through so many hard times in your life you really are a victim John. Don’t try to fight the governments supreme knowledge of what is and is not good for you. They really do know best.

In fact if you put a little of this effort into talking to the right doctor the government will send you a check every month! Its the new way of early retirement John! The government has lots of exciting ideas for you and your family. They are going to keep you safe. They will make sure you wear your seat belt in life. (physically and metaphorically) You really have nothing to worry about. Its all taken care of. Sell your mobile home parks now and let someone else pay the rising taxes, and join the growing number of people who have found the nirvana that is this government love.

Another thing we cannot comprehend ourselves is our national dept. In fact no one in the public can put on paper how we pay down our dept. The American public is just not smart enough to pronounce the names of the concepts that Washington will use to spend more and take care of the national dept at the same time! Just wait it will all work itself out. Remember John, you cannot understand the power and understanding that Washington has. They can do what they want and it all falls into place. To the average citizen it will look like magic because they are not smart enough to understand the concepts we will use.

Remember the constitution just got lucky to get us through 200 years of liberty and freedom. That old document is just that old. There is no way they could have foreseen the problems in our society today like gun rights, citizenship, states rights, or personal freedoms.

You see the government loves you more than even your mother could. I know its hard to understand, but if you open your mind to it, you will never have to take responsibility for you or your family again. If your child gets sick they will make sure to it that he gets a treatment called chemo. If you do not know what that is, it is a treatment that will kill all cancer cells. This wonder drug does not effect healthy cells, make you sick, or effect your immune system at all. In fact it is far superior than God’s natural healing remedies like fruits, raw veggies, peace of mind, sunshine(the sun is very evil), and exercise. You see these things suppress the immune system and make you sicker when you take too many of them without meat or boxed foods. (disclaimer:drug companies have never told me to say these things they have no influence on me at all trust me)

There are several hundred people down in heaven, err I mean Washington that have superior minds. These people understand things that we cannot even comprehend. So when you cannot comprehend it, just understand that its for your own good. You see the average American cannot understand why we should allow Mexicans to come over are poorly protected boarders at random. But Washington understands why. They know these illegals will soon be voters to help empower these absolute geniuses in Washington. And the ends justify the means, John. If enough of us quit using our minds, and except that we are mere peons, everything will fall into place. Remember John: An open boarder is a safe boarder!

I know its hard John. But give up fighting the government. When you finally do, you will see the light. Its not about money or power. Its about you John. They love you. Except them into your heart and you will be happier than your wildest dreams.

Nancy Pelos-Iamsmarterthanyoubecausemystatehasmoredeptthanyours

Post Edited (06-24-09 07:35)


#3

LOL, you are clearly from a state that sold/leased its turnpike to private people even though government has done such a good job of running it (into the ground). Hey, I will be speaking in South Bend tomorrow, last minute sort of thing, maybe I’ll see you there.

As much as your post was tongue in cheek, it’s amazing how many people really do think that way. Politicians are better people than us and SHOULD be given more of our money and freedom. If past results are a gauge (and they usually are), they will do a much better job with our money and freedom than we will. They ARE smarter and they DO care more - and woe unto those who doubt it!


#4

John,

I am excited about the Fort Wayne MOM! Have you looked at conference centers/hotels yet?

Call anytime, 260-908-0012

Briton


#5

John and Briton, you guys are like Laurel and Hardy… at least in the sense that I can’t stop laughing while reading your posts. Good stuff, both of you.

Speaking of the IRS, I received a penalty this year for not filing my S-corp return on time. $356. Nevermind that I DID file an extension in Feb. The fact they didn’t receive it, means it must be my fault. Oh well, it’s only money right?

Jeff


#6

“Speaking of the IRS, I received a penalty this year for not filing my S-corp return on time. $356. Nevermind that I DID file an extension in Feb. The fact they didn’t receive it, means it must be my fault. Oh well, it’s only money right?”

LMBO you got off cheap on the fines my friend, they hit me for $1050 for the same thing, we did fight it and eventually got it dropped after the companies CPA and I sent copies of the extension to what felt like about every employee that could possibly work for the IRS and 6 months worth of hassles… They finally sent me a letter that said something to the effect of “seeing as you’ve never done this before we’ll drop the fines just don’t do it again”

We sent EVERYTHING certified this year and will from here on out…